QN $1$

A USA based MNC is considering the establishment of a two year project in Japan with a USS $8$

million initial investment. The company's cost of capital is $12\%.$ The required rate of retum on

this project is $18\%.$ The project with no salvage value after two years is expected to generate net

cash flows of yen $12$ million in year $1$ and yen $30$ million in year $2.$

Assume no taxes and a stable exchange rate of US $$0\mathrm{.}60$ per Japanese yen.

Required

What is the net present value of the project in dollar terms?

QN $2$

Evaluate the advantages and disadvantages of the various foreign exchange rate management

strategies.